Tax Liability

Loading the player...

What is a 'Tax Liability'

A tax liability is the total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable event. Tax liability can be calculated by applying the appropriate tax rate to the taxable event's tax base. Taxable events include, but are not limited to, annual income, the sale of an asset, a fiscal year-end or an inheritance.

BREAKING DOWN 'Tax Liability'

A tax liability is a legal claim on assets. Should an entity default on paying its taxes, the governing authority may foreclose on the delinquent account, or take out a lien or encumbrance on an asset.

RELATED TERMS
  1. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
  2. Effective Tax Rate

    The average rate at which an individual or corporation is taxed. ...
  3. Future Income Tax

    Income tax that is deferred because of discrepancies between ...
  4. Deferred Income Tax

    A liability recorded on the balance sheet that results from income ...
  5. Taxable Income

    The amount of income that is used to calculate an individual's ...
  6. Tax-Efficient Fund

    A mutual fund in which structure and operations are based on ...
Related Articles
  1. Economics

    What is a Tax Liability?

    Tax liability is the amount of money a person or entity owes to the government as the result of a taxable event.
  2. Investing

    Deferred Tax Liability

    Deferred tax liability is a tax that has been assessed or is due for the current period, but has not yet been paid. The deferral arises because of timing differences between the accrual of the ...
  3. Taxes

    How Much Tax Do You Really Pay?

    When you add direct and indirect taxes together, your real tax rate is much more than you expected.
  4. Taxes

    Taxes: Who Pays And How Much?

    When it comes to taxes, the debate is endless on who pays what, especially in Congress. With no new initiatives in sight, let's take a look at who is paying now.
  5. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
  6. Economics

    Calculating Net of Tax

    Net of tax is a figure that has been adjusted for taxes.
  7. Taxes

    How Getting A Raise Affects Your Taxes

    Many people think they may actually make less overall because they are paying more taxes.
  8. Investing Basics

    Investment Tax Basics For All Investors

    Nothing can be said to be certain, except death and taxes even in your investments.
  9. Taxes

    Breaking Down Taxes For Different Income Brackets

    Here is a useful rundown of how much you will pay in taxes based on your income.
  10. Taxes

    Comparing Long-Term vs. Short-Term Capital Gain Tax Rates

    Learn about the difference between short- and long-term capital gains and how the duration of your investment can impact your tax liability.
RELATED FAQS
  1. What are some ways to minimize tax liability?

    Learn what tax strategies are available to individuals and business owners that may allow for a reduction in tax liability ... Read Answer >>
  2. Is the marginal tax rate a progressive tax?

    Learn how the marginal tax rate is a progressive tax that takes a higher percentage of income tax from high-income earners ... Read Answer >>
  3. What is the justification for allowing deferred tax liabilities?

    Understand the justification for allowing deferred tax liabilities. Learn the reasoning behind why a company would want to ... Read Answer >>
  4. What are the differences between regressive, proportional and progressive taxes?

    Understand the differences between the most common tax systems including regressive taxes, proportional taxes and progressive ... Read Answer >>
  5. What is the difference between income tax and capital gains tax?

    Understand the difference between a person's income tax and his capital gains tax. Learn when a person needs to pay taxes ... Read Answer >>
  6. What are some examples of a deferred tax liability?

    Learn why deferred tax liability exists, with specific examples that illustrate how it arises as a result of temporary differences. Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center